Cipla Ltd

NSE:CIPLA

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Cipla Limited Q1 FY '21 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Chirag Talati from Kotak Securities Limited. Thank you, and over to you, sir.

[Chirag Talati, Associate Director & Senior Analyst]

Good evening, everyone. This is Chirag from Kotak Institutional Equities. I thank the Cipla management team for giving us an opportunity to host this call today. From Cipla, we have with us today, Mr. Umang Vohra, MD and Global CEO; Mr. Kedar Upadhye, Global CFO; and Mr. Naveen Bansal from the Investor Relations team. Over to you, sir.

[Naveen Bansal, Head of Investor Relations]

Thank you, Chirag. Good evening, and a very warm welcome to Cipla's quarter 1 earnings call. I'm Naveen from the Investor Relations team at Cipla.Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectation of the future performance of the company. Please note that these estimates involve several risks and uncertainties, including the impact of COVID-19, that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmations, future events or otherwise.With that, I would like to request Kedar to take over, please?

[Kedar Upadhye, Global Chief Financial Officer]

Thank you, Naveen. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us today for our first quarter earnings call for the fiscal '21. I hope you have received the investor presentation that we have posted on the website.Before I come to the quarter, I hope you have had the time to review our recently published integrated annual report for FY '20. This is our third integrated annual report. And it significantly enhances the quality of our disclosures and presents detailed information on various types of capitals under the sustainability reporting framework. This initiative is in line with our focus on improving transparency, governance and setting best-in-class disclosure practices.Coming to the quarter, while the global pandemic continued largely unabated, impacting demand drivers through the quarter, I am sincerely grateful to our employees' dedication and perseverance during these uncertain times. With a single-minded focus on ensuring patient access, our teams across manufacturing, supply chain and business and various functions have worked tirelessly. Robust contingency planning has helped us manage our operations and deliver on strategic priorities as we transition to a post-COVID operating environment. We mobilized significant resources and offer tremendous support for battling COVID with comprehensive product offerings, by organic growth and through our global partnerships as well. Logistics and distributors have largely normalized now via advanced bookings and close coordination with service providers and port and air authorities to ensure smooth operations.We are also proactively derisking the import repayments on raw materials by developing alternative sources for some of our leading products. Our manufacturing facilities are now operating at healthy levels, with dynamic planning and coordination between procurement and manufacturing, supported by strong safety protocols. We have also significantly leveraged digital platforms for smooth engagement with health care practitioners and channel partners on a regular basis.For the quarter, despite the continued uncertainty, it saw strong execution across the board and demonstrated the resilience of our operations. We remain strongly anchored to our reimagination cost optimization agenda, along with focus on the basics of business, including cash and liquidity management. You will notice that these initiatives have translated into a robust performance for the quarter. We are also pleased to report the highest ever quarterly collections, which tender our liquidity position significantly and helped achieve a 0 net debt at the end of quarter.Similarly, lower on ground activity and our cost management initiative across businesses have led to cost savings, which drove the EBITDA margin for the quarter to almost 24%. While the variance in expenses versus last year will be difficult to predict at this stage, but given the strong execution on cost optimization in Q1, we believe our FY '21 operating expense will potentially be lower after absorbing all the COVID-linked escalations by almost INR 400 crores to INR 500 crores in the full year as compared to our intended FY '21 operating plans.Coming to the revenue growth. The quarter also witnessed robust performance. Overall, India business, which include prescription, trade generics and consumer health care grew 16% in the quarter on a Y-o-Y basis. Our prescription business delivered 9% growth led by chronic therapies, which offset the subdued acute therapy demand and gradually recurring base hospital business. The trade generics business delivered strong adjusted growth of 46% despite lockdown, an impact on the active business. We have continued to make good progress on our One-India strategy through successful portfolio transition. Our private-branded market franchise in South Africa grew by 24% in local currency terms year-on-year, and continued to outperform the market. The U.S. generics business delivered $135 million of revenue in the quarter, supported by ramp-up of albuterol and other new launches.For the financial performance, we would like to highlight certain specific items, which are subsumed in our reported numbers. The contribution of the COVID medicine portfolio in the India prescription business is marginal for the quarter. Remdesivir sales began in the month of July, and hence, Q1 numbers do not include any contribution of remdesivir. Also, the incremental margin from COVID-linked medicine was fully diverted towards our COVID-related efforts of supporting health care providers and frontline workers with PPE and other safety requirements. The expenses for the quarter include COVID-linked escalations in material costs, freight and distribution and admin and safety, et cetera, which have been more than offset by strong optimization.During the quarter, we contributed approximately INR 18 crores towards COVID-relief efforts, including employee contribution. Overall, income from operations is INR 4,346 crore, recording a Y-o-Y growth of 9%. Gross margin after material cost is at 63.4% for the quarter on a reported basis. The decline on a Y-o-Y basis was attributed to contribution of high-margin Cinacalcet in last year. However, on a sequential basis, this is almost 200 basis point expansion.Total expenses, which include employee costs and other expenses are at INR 1,700 crores, decreased by 17% on a sequential basis. Employee costs for the quarter is INR 772 crores. It increased marginally by 1% versus last quarter. Other expenses for this quarter, which includes R&D, regulatory, quality, manufacturing and sales promotion [ 196 ]. This actually declined by 27% sequentially, largely driven by the optimization initiatives and lower on ground activity during the lockdown.Total R&D investment for the quarter is INR 200 crores, approximately, which is 4.6% of revenue. This is largely due to expected moderation in the R&D post completion of the Advair trials, lower clinical trials and other developmental activities due to the lockdown.Reported EBITDA for the quarter is INR 1,049, which is 24% of sales. Tax charges at the effective rate of 28.5%, and we believe the rate for the full year of FY '21 will be in the same range. Profit after tax is INR 578 crore or 13.3% of sales.For the quarter ending June 2020, our long-term debt now stands at $370 billion, on average. USD 275 million is towards Invagen acquisition. And rand -- ZAR 720 million is from Mirren acquisition in South Africa and other operational requirements.We also have working capital loans in rupees, dollars and rand, which act as natural hedges towards some of the sales. Driven by strong focus on cash generation during the quarter, Cipla is now a 0 net debt company as of June 2020. Outstanding power and option contracts as a hedge for receivables as of 30th of June are USD 217 million and ZAR 628 million. During the quarter, we have also hedged a certain portion of our forecasted export revenues. The outstanding cash flow hedges are USD 256 million and ZAR 475 million.I would now like to invite Umang to present the business and operational performance.

[Umang Vohra, MD, Global CEO & Executive Director]

Thank you, Kedar. Before moving to the business and operational updates, I would like to first thank each and every one of Cipla's employees. All our vendors, our partners, in order to help us go through the upheaval of the COVID pandemic has resulted in. I would like to share Cipla's response in battling the COVID pandemic.At Cipla, every one of us has been fortunate to have an opportunity to contribute significantly to a global cause and deliver in our promise of caring for life. Under our partnership with Gilead for remdesivir, we launched Cipremi in July for India. In India, this product is currently being made available through the government and hospital channels with appropriate safety and regulatory protocols required for distribution.To help patients further, we also started a 24/7 toll-free help line to disseminate safety and procurement information on a high-quality offering, which included: Cipremi; Actemra; [ Imulsac ], which was hydroxychloroquine; azithromycin; and Ciphands. Our relentless efforts in supporting severe COVID patients included the supply of 20,000-plus vials of Actemra to 150-plus government hospitals and institutions. Recently, we have also launched Ciplenza, which is Favipiravir in India to expand our offerings to fight the battle against COVID-19.We continue to engage with physicians through multiple digital touch points, and we have retained top-of-mind recall through these times. We have also contributed significantly to their supplies of PPE and other equipment, which is required during COVID. We've also taken several company-level initiatives to ensure employee safety and support to their families.With that, let me come to the strategic updates and operational performance for the quarter. We commenced this quarter by establishing a strategic task force to deal with the challenges unleashed by the pandemic. Restricted business activity presented us an opportunity to reimagine our business models across multiple dimensions. The performance for the current quarter is an indication of the execution across these initiatives, the sustainability of which we will continue to drive as the trajectory of the pandemic evolves over the subsequent quarters. I'm extremely pleased to note the effort on cost management, resulting in significant spend optimization during the quarter and helping us drive the strong EBITDA that we have reported.In India, despite the COVID-related challenges, the progress on our One-India strategy announced -- that we announced earlier, continued to see seamless execution to integrate the 3 businesses of Rx, Gx and consumer.Coming to the business performance, we continued our strong momentum, and have reported a market-leading growth for the fourth consecutive quarter now. We are confident that the momentum will continue in the quarters to come. India Rx business grew at 9% on a year-on-year basis, supported by strong traction in chronic therapies, thereby offsetting subdued acute demand due to closure of individual clinics and the impact of slowdown on our hospital portfolio. We continue to deliver market-leading growth in respiratory, inhalation and urology despite the lockdown restrictions during the quarter, as per the IQVIA April to June '20 numbers.Cipla ranked #2 in the market share of 7.4% in chronic therapies and grew by 7% as per IQVIA in April to June '20, while market grew at 5%. Driven by cost controls and lower on ground activity during the quarter, the India Rx business saw a significant improvement in the EBITDA margin.The trade generics business continued its healthy growth trajectory and delivered another quarter of strong growth despite the lockdown adjusted for the transfers we made to the CHL business. The quality and health of the business has significantly improved as we continue to maintain channel hygiene and improve margins.To further support our domestic business, we recently announced a partnership with Boehringer Ingelheim for 3 oral antidiabetic products, which are SGLT-2 and DPP-4 inhibitors and extended our partnership with Roche for 3 oncology products, which are Trastuzumab, Bevacizumab and Rituximab.We continue to transition select high consumerization potential brand from trade generics to our CHL franchise. In the current quarter, we successfully transferred 2 brands, Naselin and Clocip from the trade generic business. With this, the total number of products transferred is almost -- is already over 5. And we are also planning to transfer a few more in the next few quarters.We continue to build on the Ciphands sanitizer franchise, the new extensions under the hygiene category. We are pleased to announce that Ciphands is now a mature and reliable brand in just 3 months of launch. Strong execution across all the initiatives helped us drive the double-digit revenue growth on a year-on-year basis.U.S. generics and lung leadership. As you're aware, our expertise in developing effective therapies for respiratory ailments stems from our lung research over the last 6 decades. FY '21 marks the successful execution of high investment, limited competition pipeline and a significant growth driver over medium to long term in the U.S. market. The U.S. generics business delivered $135 million in the quarter, supported by a ramp-up of Albuterol as well as growth in the base business. In line with our previous commentary on limited competition launches every quarter, we launched our first dihydroergotamine nasal spray with 180-day CGT exclusivity. We are also pleased to announce another key approval of Icatibant PFS recently. We will continue to maintain this launch momentum in differentiated and limited competition launches over the subsequent quarters.We've accelerated the supply of Albuterol HFA in the U.S. markets, and I'm pleased to inform that we already have 65% share of the Proventil market in 4 weeks following the launch as per IQVIA. All major retailers are under coverage for Albuterol HFA. Across the 3 Albuterol HFA products, which is Proventil, ProAir and Ventolin, Cipla has 6.2% of weekly prescription market share in the total market and 8.3% of weekly prescription market share in the generic market as per IQVIA, ending in July 2020.Coming over to our emerging market businesses and our SAGA business. The South Africa private market grew strongly by 24% over quarter 1 FY '20, and the tender business grew at about 6% in local currency terms. We are pleased to report that Cipla was the fastest-growing corporation in the South Africa market with new product launches forming a significant growth driver despite the crisis. Our private-branded market franchise in South Africa grew at 6.6%, while the market declined by 1.2% as by IQVIA MAT June '20. We continue to maintain and solidify our position with a market share of 7.16% as per the IQVIA MAT June '20 data.In the OTC space, we grew at 9.3%, while the market declined by 0.5%. And maintained our market share -- maintained and grew our market share of 7.65%. The emerging market business grew 50% year-on-year on quarter 1 FY '20 in USD terms, supported by strong demand and base effect from the last year. The adjusted growth for the quarter was 10%. The European operations grew 9% year-on-year over quarter 1 FY '20 in U.S. dollar terms. The European operations were driven by market share gains in flagship respiratory products and [ GBPMs ] in direct-to-market and new introductions. We continue to drive new biosimilar and other partnerships with deals that we have signed for the emerging market.Coming to our regulatory -- coming to the regulatory update. On the regulatory front, we are working with the U.S. FDA to comprehensively address the Goa observations. Our last and final update was submitted to the agency recently. We will continue to provide regular updates of the same in our quarterly communications, and continue to remain focused on maintaining the highest standards of quality across our network.Turning to the outlook. We understand that the COVID-19 situation is dynamic. And while the underlying fundamentals of our business remain extremely strong, demonstrated by our performance, we are also cautiously optimistic about the ensuing quarters and what they bring to us. We are navigating the peak phase of the pandemic, with sharp rise in infections, which threatened the recovering health care ecosystem. Supported by the strong back-end operations on the front and logistics, we continue to approach the coming 1 to 2 quarters cautiously as clearer demand patterns emerge from our market.Across our operating geographies, business units are actively reimagining their models to transform in the next quarter. We are witnessing a significant traction against digitally efficient means of engagement, which cuts across markets and functions, identifying product market opportunities as a direct, indirect outcome of the pandemic. We are developing and building sustainable, leaner models built on a strong cost focus. And there's a fair amount of focus on automation and process simplification that can support more informed decision-making. Balancing growth while maintaining cost leadership is going to be the mantra going forward for our businesses across the world.Our India businesses will scale across the 3 pronged strategy of Rx, Gx and CHL. And our One-India strategy will continue to drive the quality of revenue growth and health metrics. In South Africa, we will continue to maintain leadership across the private and OT markets. And on the U.S. generics business, we shall continue to build a respiratory franchise and solidify our position as lung leaders globally. We continue to engage with the U.S. FDA for the approval of the [indiscernible] product. Our partner for an Indonesian asset will respond to the FDA later this year on queries that they had received. We are looking at healthy launch pipeline for the next year and have already seen traction across the recent launches that we have had. We will continue to keep our facilities in a state of compliance and control.I would like to thank you for your attention and will request the moderator to open the session for Q&A.

[Operator]

[Operator Instructions] First question is from the line of Saion Mukherjee from Nomura.

[Saion Mukherjee, Head of India Equity Research]

I want just 2 forward-looking question on India and U.S. on the growth trajectory. How do you see U.S., Proventil particularly, ramping up? You mentioned about 65% market share. But are you able to take market share from the other Albuterol brands? And what's your target market share of the overall Albuterol market? And if you can generally comment on growth outlook for the U.S. And similarly, on India, I think the growth has been one of the best of 9% in the brand market. And I mean, do you see this range of antivirus and COVID-related products that you've recently launched will be a meaningful contributor to revenues going forward?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. So let me take the India question first. I think on India, looking at the case load that we are going through as a country, I think that there will be perhaps continued momentum for some of the products that we have been selling. Also, the monsoon sale, the rains. Though the season is limited, I think there will be a little bit of a viral outbreak as well. So we are well prepared for the India business. I think we hope to see momentum continue here. Saion, we also had a low base effect for our Rx business last year. So just keep that in mind as well when you look at our results. But overall, I think we see our momentum continuing for the India business.We are seeing a decline in hospital sales, and we had a fairly large share of the hospital market. But we're beginning to see that hospital procedures and, to some extent, surgeries are now coming back, possibly not at the same rate that they were before, but I think we see them recovering over a period of time. So yes, I think quarter 2 momentum, quarter 3 momentum in India, hopefully, should continue. And we're working towards that.On the U.S., the 65% is just the Proventil market share. It's not the total category. But Saion, our belief is that there's a large share of this market that still writes Albuterol generically. And that we do believe that there will be -- that Albuterol as a category and not specifically as a brand substitution is a thesis at play. I can't give you details on how much volume and our targeted market share, et cetera, is but I believe we have capacity and the cost position to compete in this market.

[Saion Mukherjee, Head of India Equity Research]

And just one more question, if I can, to Kedar. Kedar, you mentioned about INR 400 crore to INR 500 crore lower operating expenses compared to what you had initially budgeted. In this quarter itself, we have seen INR 200 crore. It appears to me that there is some savings beyond the pandemic. Will it be possible for you to quantify that?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. See, there are 2, 3 components signed. First, obviously, the activity on the ground itself is lower across various functions and businesses. And secondly, I think this forced the entire industry, not only us, to think about reimagination of operations and business models. And in overview, we have done a pretty decent job at it, be it digital, be it supplementing the current state of operations for virtual engagement with customers and other partners. And multiple other initiatives signed have offered us a way to run the business in a different model. So I think the 2, 3 components have come to give us that leverage. And that's where we feel that we will have that kind of benefit this year.

[Saion Mukherjee, Head of India Equity Research]

Yes. No. Basically, what I was mentioning is that there is a forced benefit because of the lockdown. Now let's say, next fiscal year, when things normalize, I mean this base that you would form, you would grow at a normal rate from this pain. There won't be a step jump as you open up. I mean there is an element of sustainability and this is what I was trying to...

[Kedar Upadhye, Global Chief Financial Officer]

Exactly. Exactly. So I think that element, which is linked to reimagination and a different way of running our operations and commercials -- commercial geographies, that would sustain beyond the pandemic as well. You are right.

[Saion Mukherjee, Head of India Equity Research]

Okay. So you think 20%-plus EBITDA margin is sustainable? I mean with all the initiatives.

[Kedar Upadhye, Global Chief Financial Officer]

So we -- as you know, we wouldn't like to give guidance, but yes, I mean, given that this quarter is 24%, I think our target would be to reach somewhere at those levels.

[Operator]

Next question is from Krishnendu Saha from Quantum Asset Management.

[Krishnendu Saha, Vice President of Equity Research]

Just on environmental or by hydro, which you launched in the month of May. Were we able to meet up because of mortgage nature or that is still not being captured?

[Kedar Upadhye, Global Chief Financial Officer]

Krishnendu, quarter 1 numbers don't capture too much of...

[Krishnendu Saha, Vice President of Equity Research]

Sorry, my mistake. Sorry, it was my mistake. So secondly, question was on Albuterol, what is the reason you think that you're not getting market share from the other franchises?

[Kedar Upadhye, Global Chief Financial Officer]

Umang, you want to take the question?

[Umang Vohra, MD, Global CEO & Executive Director]

No, I don't think we're saying we can't get share. I think we are saying that a part of the market is written -- as written as Albuterol, and there is a share -- there is a little fluid on how each category can take share, from each created category can take share from the other within the Albuterol space. So we believe that could happen.

[Krishnendu Saha, Vice President of Equity Research]

Okay. So there is a slight difficulty obtaining through branded [indiscernible]. Is that kind of [indiscernible]?

[Umang Vohra, MD, Global CEO & Executive Director]

I can't -- I'm sorry, you weren't very clear. Could you repeat that, please?

[Krishnendu Saha, Vice President of Equity Research]

So it is a little bit difficult to get from the other franchises. Is that going to be understood?

[Umang Vohra, MD, Global CEO & Executive Director]

That is not our belief right now. Our belief is that it is possible to get from other [ cats ]. That is our belief.

[Krishnendu Saha, Vice President of Equity Research]

Okay. And last question on settlement of Amgen, which like I said. So how does that scenario look out for us right now? So like with [ SAGA ] and all [indiscernible] they first?

[Umang Vohra, MD, Global CEO & Executive Director]

I think it is a fully generic market now. So the settlement that we had was, I think, to address the past of what we have done.

[Krishnendu Saha, Vice President of Equity Research]

Okay. So there's no liability on us any model?

[Umang Vohra, MD, Global CEO & Executive Director]

No. No, there is no liability.

[Operator]

Next question is from Prakash from Axis Capital.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Congratulations on good numbers. I missed the initial comments, but the Rx, I heard it right, 9% growth. If I see your table across therapeutic segments, respiratory inhalation, all are between 5% to 6% growth, except cardiology. So is there an element of -- I understand these are equal numbers. So the remaining would be COVID-related products that you might have sold?

[Kedar Upadhye, Global Chief Financial Officer]

Prakash, I clarified the contribution of COVID medicines during quarter 1 was not as high. It was not more than 1% or so at a company level. So I think, yes, it will take some time for the IQVIA numbers to relate to primary numbers, which we report in the financials.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. Great. And coming to COVID-related treatment, like you are leading the pack in terms of remdesivir and Tocilizumab. Just wanted to understand the math since these are in-licensed products, how does it work? I mean we get marketing margins, we are doing manufacturing also and what is the quantum, if you can share?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So in case of Actemra, we'll get marketing margins, Prakash. In case of remdesivir, we used to source the product from a manufacturer, a contract manufacturer for some time, and we have our own product in the market as we are speaking now. So going forward, a large part of the supplies will be from our own manufactured version on the remdesivir. Actemra is, as you know, we will get marketing margins.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And in terms of quantity, if you can, like we are fully now -- there was some shortage issue. Are we like full-scale capacity now with our own source for remdesivir? If you can help us understand that.

[Kedar Upadhye, Global Chief Financial Officer]

To a great extent, we would say the backlog has been cleared, but we still will have to do continued work on fulfilling demand.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. But you're not quantifying in terms of million units that you're doing or something like that?

[Kedar Upadhye, Global Chief Financial Officer]

No. We don't want to do that. I think the situation is quite evolving day by day. And the demand keeps changing day by day. And so I think it will be difficult for us to give you any overall view at this point of time, but we'll have to do continued work on fulfilling the demand for these products.

[Operator]

Next question is from Nithya Balasubramanian from Bernstein.

[Nithya Balasubramanian, Research Analyst]

Umang, Kedar, congratulations on the great results. So I have 2 questions. One on Albuterol. What kind of price erosion are you seeing in the market? Does it seem like a stable market? And what is the kind of discounts prevailing in the market right now?

[Umang Vohra, MD, Global CEO & Executive Director]

Nithya, the market, from what we understand, is largely stable. There hasn't been too much of a price decline. I think from -- maybe from a 2, 3-month prior to our launch sort of a setting till today, I think prices are down by about 25% to 30%, but still very, very respective.

[Nithya Balasubramanian, Research Analyst]

So just a clarification of the 25% to 30%, you're paying this again of that and my guess, is this is against what, let's say, a provider of Ventolin is selling at?

[Umang Vohra, MD, Global CEO & Executive Director]

No. I think this is more from Jan. This is around the Jan period, pricing that I'm comparing with. So the pricing is still respectable in the market.

[Nithya Balasubramanian, Research Analyst]

Understood. Do you see this changing meaningfully once the third player is in the market? And your competitor is guiding for an imminent launch?

[Umang Vohra, MD, Global CEO & Executive Director]

Well, I think the category is large enough. It's a 55 million, 60 million unit category. And I think scale-up in this category takes a while. It's not because of the inhalers. The scale-up is going to take a long time. So I don't expect us to see -- I don't expect us to be seen too much of -- I mean, I think the scale up, the volume and the price/mix equation will play out the way we think it will in this market because there's a huge volume and there are units as well. So -- and the good news is that there is nobody that we know of other than another competitor who's going to end up. But we will -- I mean, the market price is the market price, and we will respond to it. As I mentioned, we have very strong cost position here, and we also have a large enough capacity to make this.

[Nithya Balasubramanian, Research Analyst]

Understood. My other question was on the gross margins. Maybe Kedar, you can help me here. If you look at the business mix in this quarter, it's actually pretty favorable. You got India doing well, emerging markets is doing well. And Proventil is also scaling up as we speak. Shouldn't we have seen a slightly higher gross margin than what's being reported? Is there anything that you're missing? Is there any one-off in the line item that we are not seeing?

[Kedar Upadhye, Global Chief Financial Officer]

No, Nithya, off line, I think, given the mix that we have of both high-margin and relatively lower margin therapies in each geography, and overall geography mix within Cipla, I think more or less, this is where we were also driving towards. I think some more basis point expansion is possible. But you have seen that the Gx business grew very high this quarter. So I think the gross margin is a derivative of the, as I said, business mix and therapy mix within businesses.

[Nithya Balasubramanian, Research Analyst]

Okay. Understood. So trade margin comes in at a slightly lower gross margin, which is why the [indiscernible].

[Kedar Upadhye, Global Chief Financial Officer]

And as a percent of trade generics business is quite close to the prescription business, but gross margin-wise, it is lower.

[Operator]

Next question is from Sameer from Morgan Stanley.

[Sameer Baisiwala, Executive Director]

Doesn't look like a COVID quarter. So congrats, very good numbers. So Umang, I missed your opening comments on the partnered inhaler products for the U.S., who's engaging with U.S. FDA announced inquiries. So just if you can clarify on that.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. Sameer, we had, last time, also mentioned that we have one in partnered asset that we were not disclosing the name for. And I think it's a partnered asset with another -- with a partner. And I think the -- that partner will probably finish addressing their queries to the other queries and their submissions to the FDA before the end of this year.

[Sameer Baisiwala, Executive Director]

Yes, exactly. So therefore, I was a bit conscious. The query should begin after the filing no? Or is it some other type of queries? So the filing has not been [indiscernible].

[Umang Vohra, MD, Global CEO & Executive Director]

I wouldn't -- well, I don't want to comment on that, Sameer. I think the -- all I can say is that they're responding to certain queries that were raised to them.

[Sameer Baisiwala, Executive Director]

Okay. When will the filing -- the official...

[Umang Vohra, MD, Global CEO & Executive Director]

We believe the filing -- yes, I think there is a filing that has happened. And there were queries received on the filing, and there was -- and that partner is hopefully going to respond to those queries by the end of this year.

[Sameer Baisiwala, Executive Director]

I see. Okay. Great. And second on Advair, where you've mentioned you're engaging with the regulator. So what's the expectation? I think last time, a couple of quarters back, you mentioned that it would take -- it can't be cleared in 1 cycle review. So any change to that? Or when do you think earliest you can be in the market?

[Umang Vohra, MD, Global CEO & Executive Director]

No. I think we're sticking to the same, Sameer. I don't think this is a first pass. I would find it hard to believe that Advair would be a first pass clearance asset. So we had guided that from our filing it could be 18 to 24 months, and we are holding on to that.

[Sameer Baisiwala, Executive Director]

Okay. My final, with your permission. Just on Albuterol, did Q1 had a fair bit of channel -- in the launch quantities, channel selling? And therefore, numbers were higher and 2Q kind of moderate? Or that's not the case?

[Umang Vohra, MD, Global CEO & Executive Director]

I think 2Q might moderate a little bit because I think, Sameer, what also happened was around the time we launched, there was also a shortage in the market in Albuterol. So I think a little bit of stocking happened at that point in time. But I also think that, that time, there were only 2 or 3 states, which had the peak pandemic. Now we're realizing the pandemic is across most of the popular states in the U.S. So yes, I think it would marginally moderate. That's what I would say from where Q1 was.

[Operator]

Next participant is Neha Manpuria from JPMorgan Chase & Company.

[Neha Manpuria, Analyst]

Umang, in your annual report, there's a comment about -- and I think you've mentioned this several times in the past, about calibrating your U.S. investment. As we now reset our base of this year with ProAir, do you think it makes sense to broad base our launch pipeline like some of our peers have done to capture increasing share that comes out of the existing product portfolio?

[Umang Vohra, MD, Global CEO & Executive Director]

Neha, I'm sorry, I didn't quite get your thought. I think I had a deep connection. Could you just repeat that, please? Sorry.

[Neha Manpuria, Analyst]

Sure. So in your annual report, there's a mention about calibrating your U.S. investment. Now that we are resetting our U.S. sales with Albuterol, do you see the need of sort of broadening your launch pipeline for next year, having more number of launches other than the differentiated launches to continue double-digit growth in the U.S.?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. So I think -- let me clarify, Neha. I think the first thing that happened was that we had a very large share of Advair in our expenditure. So if I was to look at this last year, Advair itself was almost $30 million plus. And no other asset will come that close to the type of clinical spend that's required, right? So it was effectively like running 3 respiratory programs was the type of effort it took to run the Advair program. So I think part of what we said was a moderation on account of that, right, which is that, that major spend is away. It's gone now, and so we don't have that in our mix. Other than that, what we've also created is we've tweaked our portfolio a bit to go back to based on how we've made money in the last 2 or 3 years in the U.S. to go back to products where we think these opportunities could arise. And so therefore, some amount of that meeting has happened. So I'm not sure that at a point right now where we will broad-based expand. But I think we will be very selective going forward because I think the true power of each of the assets we have is quite significant.Our bigger -- the bigger issue for us is to be able to execute this material, I think, and I would like, even if we take 12 or 15 assets per year, I would like that our execution there almost we mix the type of execution we would put in for 30 assets in terms of effort. Because finally, even within those 12 to 15, there'll be only a few that will deliver meaningful returns.

[Neha Manpuria, Analyst]

Yes. Okay. Understood. My second question is on the One-India strategy. Earlier this week, there was news about a fair bit of churn in your India management. Does this impact the strategy that you will see for India? Would you like to comment on that?

[Umang Vohra, MD, Global CEO & Executive Director]

Certainly, I'd be happy to comment. I think we hope it will not have an impact. I'm trying to also personally step in now to make sure that the business is stable and it's growing the way we expect it to. And of course, the current leader is also there until the end of -- pretty much till the end of September. So I don't think it will disrupt. I think Cipla has a long tradition of leadership bench. We have very strong cluster head leads. And I think this is -- I mean, an 80-year old company, you have many leaders who find attractive opportunities outside, but also many leaders who they groom internally to be able to take the slot. So hopefully not. We are hoping to see the momentum and we're looking forward to the momentum continue.

[Neha Manpuria, Analyst]

Understood. And if I may squeeze in one more for India. In the trade generic business, have we gone back to our pre reorganization efforts that we had last year? Have sales recovered to that level?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes, pretty much. Pretty much.

[Operator]

Next question is from Anubhav Aggarwal from Crédit Suisse.

[Anubhav Aggarwal, Associate]

One question. When you talk about reimagining India business post-COVID, so are we talking about lower reps now? Or are we talking about, let's say, physical conferences to doctors, what was changed in terms of activities on the ground?

[Umang Vohra, MD, Global CEO & Executive Director]

So I think right now -- so let me put it into 2 parts. Obviously, reimagining conferences, et cetera, is a big part, right? And I think, a, it's helped by the fact that there are no major conferences happening physically. So people are now experimenting with formats and how to do it. And I think some of that experimentation has given rise to ideas on how this could or that some portion of it could be sustainable going forward to happen, let's say, digitally. The second thing, maybe I could mention is we are also trying various formats where the reach to doctors can be optimized using digital solutions. So I think it's a combination of both, Anubhav. It's a combination of this. There are multiple things that are being tried. Some of these will stick, some will not stick, right? But I think just the true -- for example, we have a relatively large organization in India. We have almost 8,000, 9,000 people on the field. Just reimagining this for those 8,000 to 9,000 people is going to unleash tremendous amounts of growth and coverage of doctors who be otherwise could not and tremendous amounts of productivity.

[Anubhav Aggarwal, Associate]

Sure. No. I'm digging on that, absolutely. So but the larger piece of savings will come from the conference itself? Just to understand. If you look at this to 2 buckets?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. Both that and also travel to some extent, Anubhav, because I think a large portion of the sales infrastructure cost is also travel, right? The supervisors will go to travel, to figure out how the reps are performing on the field, et cetera. And a lot of that now can be reimagined. So it's conferences. It's this. It's also the reach model to doctors. So all of it is under mix. At this time, if your question is how much of it will stick? I can't give you very credible answer, but we're trying multiple formats to see what will stick, and we want to stay with that.

[Anubhav Aggarwal, Associate]

Sure. And the second question was on South African market, very strong growth actually. So can you just think -- let's say, is there anything -- the portfolio would have largely remained safe. So this quarter, would you say it was an exception? I'm talking only about the private market, sir. That this quarter an exception? Or this whole year, we can look at more than 15% kind of growth in the South African market? Can you consent?

[Umang Vohra, MD, Global CEO & Executive Director]

So 2 things are happening there, Anubhav. I think some portion of the growth is -- could be exception, but we are hoping to see healthy -- very high senior or double-digit growth for our private market there as well, right? But I think this quarter is slightly more because I think maybe there might have been a base effect over the last year. But also, the other thing that's happening with the health authority there, the SAHPRA, is that they are also trying to expedite approvals for a lot of the products, and they are running a program, which is trying to get more and more products approved, which were backlogged earlier. So I think we're also going to -- we are hopefully also going to benefit with that.

[Anubhav Aggarwal, Associate]

Sure. Okay. And just lastly, can -- any more [ respi ] filing for this year? Other than the partner product that you talked on?

[Umang Vohra, MD, Global CEO & Executive Director]

That is correct. Well, that's already been filed. I think the partner product -- is the partner is going to respond to queries. But this year, no. We will be starting clinical trials on 2 more products this year, but later half of the year.

[Operator]

Next question is from Girish Bakhru from Bank of America.

[Girish Bakhru, Vice President]

Great set of results, Umang and Kedar. First question on actually remdesivir. I mean do we have a broad assessment of what is the current demand? I understand, COVID numbers are increasing. But what is the unit demand overall in the market?

[Umang Vohra, MD, Global CEO & Executive Director]

So I think overall, the unit demand right now is far in excess of the capacity in India. So let me start by saying that. However, I think on remdesivir now, we are aware of at least 6 players are going to sell the product in the country. So if you accumulate capacities across these 6 players, my belief is that this product will not be capacity constrained, give or take another 2 weeks or 3 weeks. So that will -- so I think remdesivir will significantly -- it will significantly reduce the shortage on the [ LSLE ].

[Girish Bakhru, Vice President]

Right. And would it be fair to assume, let's say, most of the severe patients will have this product in their treatment protocol?

[Umang Vohra, MD, Global CEO & Executive Director]

I can't comment on that. But I think -- and it may not necessarily also be characterized as a product that just the severe people are getting now. I think we are also hearing stories where -- or reports where this is being given to mild to moderate patients also, but who have a higher risk, right? Higher risk factors. So actually, it's somewhere in the middle. I think the government's also gone out -- every state government is treating this differently. And some state governments have also said that this should be started from moderate cases as well. So can't quantify that, Girish, I think it is across all that's mentioned.

[Girish Bakhru, Vice President]

Right. And just linked to this, I know, it's a very broader question again. I mean given so many options are coming slowly, and you are going to participate in many of those. So let's say, comparing some of these Favipiravir versus remdesivir, where do you see market will become bigger? Or will it be largely equally distributed from your understanding?

[Umang Vohra, MD, Global CEO & Executive Director]

So I think this is largely a question perhaps to doctors, et cetera. But I can give you my view, having seen this market and the way it's moved from product to product. Unfortunately, we do not have a cure for this. The remdesivir, Tocilizumab, to some extent, Favipiravir. They're all showing they're reducing the hospital stay for a large number of patients now. And therefore, it is helping patients recover faster, which frankly is good news in a way for a market and for countries, which are capacity short-lived because of the hospitals coming under pressure. So I think if you look at remdesivir it's based on data published that reduces hospital stay by 6 days, I think Actemra showed closer to 8 or 9 days from the clinical trials that they did. So definitely, these -- they're reducing hospital stay, but from the data that's been published so far, none of them is actually a full cure, right? And so at this point in time, I think it's difficult to imagine a fully set protocol for treating this disease.

[Girish Bakhru, Vice President]

Right. Second question, actually, on just the remdesivir franchise. And I'm taking liberty to actually quote number from 2015, our overall Cipla candidate respiratory franchise of almost $300 million. And I think that time, Cipla was commenting potential $1 billion number in 2020. Possible to give what would be the number today? And given you have significant pipeline emerging, where do you see overall respiratory franchise going for the company?

[Umang Vohra, MD, Global CEO & Executive Director]

Girish, we have the numbers. I'm not sure we'd want to be as public about these in terms of where we see it going, right? But I'll just say this that across the world, the U.S., Europe, emerging markets and India, we expect to solidify our leadership in respiratory and we did some data analysis. And across the world, we are the second highest seller of inhalation products. And GSK is #1. We are #2. And we want to solidify our leadership position. So in terms of numbers, we are not commenting, but a large portion of our capital allocation and resource decisions will go through the respiratory cancers.

[Operator]

Next question is from Shyam from Goldman Sachs.

[Shyam Srinivasan, Equity Analyst]

The first one is just a clarification on the fourth quarter comment of about $2 billion of delays that you had because of logistic issues. So we have booked that in the first quarter, right? All of that has come through this quarter? That is the question.

[Kedar Upadhye, Global Chief Financial Officer]

Shyam, actually, the -- what is happening is because of the COVID or otherwise, I think the transportation schedules are in the process of getting back to normalcy. So I think some part of that got spilled over to quarter 2 also. So 30th June spillovers are also relatively higher than what they are usually as at the quarter end. So to answer your question, the -- what we had as at March end, probably not more than half has come in into quarter 1. Less than half has come into quarter 1.

[Shyam Srinivasan, Equity Analyst]

Got it. And these logistic issues, Kedar, we have heard others comment about freight charges and stuff. Can you just understand what is happening there on logistics specifically?

[Kedar Upadhye, Global Chief Financial Officer]

Yes, we have seen escalation during the quarter. We have seen escalations on 3, 4 items we said, materials cost and some of the admin and safety items, then transportation, driver charges and everything, and we have been able to offset it by savings everywhere else. As we are speaking now, these are getting normalized, Shyam. Both the schedules, availability of freighters and charges, everything is getting normalized as we are speaking.

[Shyam Srinivasan, Equity Analyst]

Got it. Got it. And my second question is on the net debt and us achieving it, which means that now going forward, we will have decent amount of free cash flow that flows through. So what is the outlook for that? If I look at R&D for this quarter, clearly, it's down 38% Q-o-Q. But I'm just trying to understand, I think Umang also talked about more trials. So can you help us understand, one, on R&D, how it's going to ramp up probably in the remainder of the year? And what should be the levels for fiscal '21? And what are we doing with the free cash?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. See, the R&D as a percentage of sales probably will not see much of a ramp-up because we have not rationalized too many projects. All the high-value and high-margin and strategic projects are being fully funded, including a couple of these respiratory assets that we referred to. And we also, as you know, have IV Tramadol to plan for. So I think between both the R&D funding and use of cash, we have enough for the foreseeable future. And as you know, during the COVID times, the definition of what is an excess cash itself gets changed. I think we have to have some buffers. So we will plan for, and we will think for what's the best use, but between organic CapEx, between the R&D and some of the dividend and other items. I think as of now, I think, probably we have set. But as we start the next year, I think we'll have to just see how do we think of some of these matters.

[Operator]

Next question is from Nikhil Mathur from AMBIT Capital.

[Nikhil Mathur, Associate of Small Caps]

So my question is around the consumer addition of certain brands that was talked about in opening comments. Now what I'm trying to understand is that, a, what was the need to adopt this kind of strategy of consumerization of certain brands? And I'm -- my understanding is it's more on the trade generic side that is being done. And second is that, what does it lead to? Does it lead to higher prescription generation or gross margin accretion? So what does it eventually lead to that can give [ Mirren ] the strategy being adopted?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. See from our point of view, I think we had 2 avenues. If you remember, a year back, I think there was some noise about generic sizes and trade margin capping and various things that we're able to keep watching how do those things progress. But I think while all that is being sorted out to preserve and actually grow some of the portfolio of trade generics business, which is amenable for consumerization. I think that was a great lever for us to create value. So I think it will achieve all the objectives that, in fact, you referred to. So partly -- so firstly, I think creating stickiness and creating more consumer-led demand algorithm rather than probably a channel-led demand algorithm. That is one.And secondly, backed up by that a little bit of pricing premium, a little bit of stickiness and predictability of demand pattern and associated enhancement in gross margin. Now this will obviously won't happen in a month or quarter, but it will take time. But I think we are seeing, whatever shifts have happened, we are seeing healthy ratios of stickiness. We are seeing healthy ratios of patient, I mean, customer acceptance and all these metrics of consumerization that one could track based on market statuses. Those are looking quite healthy.

[Nikhil Mathur, Associate of Small Caps]

Okay. So 2 things there. One is that, what kind of therapeutic areas are more or you're more targeting to convert into more of OTC and consumer brands? And second is, can you share some internal targets as to what percent of domestic sales can eventually be more consumer oriented? Maybe 2 keys on the line?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So we'll be comfortable to share some of these targets in the coming few quarters. But you should expect us to be quite aggressive on that part. I think consumer agenda is one of our top 2, 3 passion objectives that we have laid out in our overall strategic framework. So you should expect a specific numbers once we are comfortable to share, we'll come back to you in the coming few quarters. And the first question that you asked in terms of therapeutic areas are, obviously, with respect to what could be consumerized than not necessarily medicine per se, but something like pain management, vitamins. And I think, as you know, we have one of the leading players in the [ coding ] replacement therapy. So I think we have very interesting plans there.

[Nikhil Mathur, Associate of Small Caps]

Okay. And just final question. If I look at over the next 3 years, FY '20 to FY '23, given the stated strategy of focusing more on the domestic business, and working more on limited completion products in the U.S., it seems that the domestic business should outgrow the U.S. market, obviously, ex of certain opposite like Albuterol and Advair. If I just keep them aside, it seems that the domestic business will outpace all the other business segments that we have in the portfolio. So does it mean that we are looking at a structural business mix upgrade every year hereon? Or am I missing something here?

[Kedar Upadhye, Global Chief Financial Officer]

I mean, as you know, all the businesses in our portfolio have their interesting economic characteristics. And India and U.S. are obviously the largest ones. And both are -- both have significant tailwinds in their respective geographies. So I think it's difficult for us to compare between these 2 businesses. Both are strategic for us. Like all of the other businesses or emerging markets, API and the SAGA, et cetera. So we wouldn't want to get there. And it's tough to say now, which one will grow faster than the other because I think some of tailwinds may have -- maybe not fully predictable. So we would probably not want to comment on which one will grow faster and which one will have higher mix. But strategically, the direction is clear when we announced One-India. That our focus on India, resource allocation, bandwidth will be -- will obviously, have results.

[Operator]

[Operator Instructions] Next question is from Tushar from Motilal Oswal.

[Tushar Manudhane, Research Analyst]

Yes. Just correct me if I'm wrong. So we also have an approval for TLD. So aren't we planning to monetize this opportunity, given that it's a fairly big market in South Africa and the U.S. [indiscernible]?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. I'll comment on South Africa. Yes, absolutely. But far related than U.S. filing, I think we can comment later.

[Tushar Manudhane, Research Analyst]

I didn't get you. You said, you'll be planning to monetize in South?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes, yes, sorry? Yes. So South Africa, yes, the monetization will -- of TLD actually has already started, and it will continue. And for the U.S., of course, it's an IP product. So I don't want to discuss any of it right now on this call.

[Tushar Manudhane, Research Analyst]

Okay. Fair enough. Just one 1 more question on this cost of the API. So we were hearing from a lot of guys that the API companies have taken a steep price increase in quarter 1. And last week onwards, it's been coming to the news that the Chinese guys are now taking a steep price cut in the KSMs. So any views here would be very helpful.

[Kedar Upadhye, Global Chief Financial Officer]

Some of this is still evolving. And while this price increases or the recent price decreases that you referred to. What we have seen is that does not happen on the entire portfolio. That happens on select molecules and select API or KFM. So actually, will they impact our bottom line, either positively or negatively, I think usually overall basis, the sensitivity of this decreases or increases is not very high, unless it happens at a portfolio, which is very rare.

[Tushar Manudhane, Research Analyst]

And what would have the kind of inventory we might be maintaining with us?

[Kedar Upadhye, Global Chief Financial Officer]

Yes, we do maintain, on an overall basis, we do maintain more than 5 months. That includes the -- everything that includes API, KSM, CPMs, finished goods, work in progress. So I think all put together, company level inventory holding is roughly a little more than 5 months.

[Tushar Manudhane, Research Analyst]

Okay. Great. Just one last question, if I may squeeze in. On the hospital side of the business in India, on the anti-infective portfolio, are we seeing good enough ramp up coming in, in the sense that -- is there a pent-up demand visible now?

[Umang Vohra, MD, Global CEO & Executive Director]

Not as yet. Not as yet. We have not seen that coming up, but it is marginally better than before, but we are not seeing it coming up.

[Operator]

The next question is from Nitin Agarwal from IDFC Securities.

[Nitin Agarwal, Analyst]

Sir, 2 things. One is, a, on the emerging markets. You mentioned about some more biosimilars being licensed. Now how are you seeing this over next, say, 3 to 5-year view, how do you see itself place in this whole emerging market biologics opportunity? Given the strategy that you've adopted?

[Umang Vohra, MD, Global CEO & Executive Director]

No. It's one of these is -- can be fairly meaningful for the country. Because biosimilars are typically bigger products. And some of our competitors have actually shown that these franchises can last for a long time and are demonstrably contribute. And also what we have seen in South Africa is the same experience, which is a large deep market for us as well. So our plan is to take this to some of our large emerging markets, which is where we've been trying to get and leverage as many biosimilar products across the countries. And I think that is what we're doing. But it is -- you're right, it will take about 2 to 3 years, at least, to unlock. The good thing is a lot of these filings are being -- have been made or will be made by the end of this year, and most of the partnership agreements are all concluded.

[Nitin Agarwal, Analyst]

Umang, how do you see the market in the -- for some of these larger opportunities in some of these larger markets? Is it, I mean, is it going to be actually -- I mean, with -- so a, one, a, as these kind of partnering opportunity is really available on the top literally for multiplayers to sort of participate in these opportunities? Or are these going to remain like limited combination products across markets?

[Umang Vohra, MD, Global CEO & Executive Director]

I think that they're going to be limited by time on the emerging side. Because what has happened is that the number of technologic -- the number of people offering a biosimilar has gone and increased significantly. So there are lots of people who have biosimilar products now. And I think it will -- from where we were about 3 years back to where we are today, I think the number of people supplying these treatments have gone up quite significantly. So I think they will be limited by time and also limited by reach. For example, a lot of people don't operate in the markets that we operate in. And so to vice versa, right? And therefore, you have to cure the market carefully where this could give you a relatively nice uptick, which could stay at least for a year or 2 years before the other competition enters.

[Nitin Agarwal, Analyst]

Got it. And secondly, on this API business. There has been a lot of momentum that you've seen across most of your peer set on their API business and people sort of recalibrating their API plans to double back or double down their business. How are we perceiving -- how -- I mean, what is our strategy towards this business going forward from a third-party supply perspective?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. So we are -- in the API business also, we have a fairly -- let me put it this way, we worked with certain advantaged APIs. For us, our overall API business in terms of third-party sale is approximately $100-odd million of size. But a lot of our captive comes from this business as well. So we are trying to only focus on those molecules, which we think are big. But at the same time, we are also, like many other companies, also seeing how to derisk our reliance on China and other places in the world. So I think there's a list of targeted APIs that we are trying to reduce our reliance there. And that may give rise to either a better cost position or a different product category that could add to a third-party API business as well.

[Operator]

Next question is from [ Teranga Garvan from Ulrich Capital ].

[Unknown Analyst]

I have a couple of questions. The first one, do you see any structural decline in your India SMB spend? If so, if you could give us a sense on the nature of spend and the quantum of spend data likely to not come back in a meaningful way post the pandemic. That's one. The second is, if you could give us some sense on the size of your injectables and inhalation franchisees in U.S. in FY '20? And what percentage of your pending NDAs are from these franchisees?

[Umang Vohra, MD, Global CEO & Executive Director]

Kedar?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So Dara, if I could take the first question. So like what we said, there are 2 components to the decrease in the spend that we're noticing in this first quarter. And we would certainly like to believe that there is an element, and it's a fairly large element of the spend decrease, which is structural and which is led by our reimagination efforts that will continue postpandemic as well. And we would probably get a validation of the magnitude of that spend in the next 1 or 2 quarters because we need to see the sustainability of rate. But we would like to believe that large element of the spend decrease would sustain beyond the pandemic as well. And that is associated with the fact that our customer engagement activity is becoming more virtual now.Our travel and commute and other angles of market activity would probably shift to digital world. And you've seen that for all the companies. So I think plus our own efforts on reimagining. There are several initiatives that we have taken internally to see how do we actually achieve speed, agility and the greater delight of our channel partners, of our customers to virtual mode. So several of these initiatives are coming together and those actual levers for us to do what you said, [ Daram ], that postpandemic, this will not continue. In a quarter or so, we'll be better placed to give you an estimate of how much would that kind of spend be. That's the answer to your first question.On the second question with respect to injectables. Let's take it offline. We'll come back to you with facts.

[Naveen Bansal, Head of Investor Relations]

Ira, can we close the call now?

[Operator]

Yes. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.

[Naveen Bansal, Head of Investor Relations]

Thank you, everyone, for joining us on the call today and staying today till 8:00. In case you have any follow-on questions, please feel free to reach out to us. You can also write to us at [e-mail]. So thank you, everyone, for joining. Have a great weekend, and stay safe. Thank you.

[Operator]

Thank you very much. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.